Greek banks to absorb potential further interest rate hikes on mortgage loans

ATHENS (Reuters) - Greece's four largest banks will absorb any further interest rate hikes on mortgage loans for 12 months from May to help households cope with rising housing costs, two banks and the country's finance minister said on Tuesday.

Greek household incomes have faced a sharp squeeze after a series of interest rate hikes by the European Central Bank since July resulted in a rise of about 10%-25% in monthly mortgage loan payments.

In separate statements on Tuesday, Piraeus Bank and Eurobank said they would freeze their floating interest rates on outstanding mortgage loans from next month to April 2024, by referencing them on March's Euribor rate minus 20 basis points.

Finance Minister Christos Staikouras told Real FM radio that National Bank of Greece and Alpha Bank were expected to announce similar moves to stabilize the borrowers monthly payments to existing levels.

Greek bankers estimate that up to 500,000 borrowers who have been servicing their mortgage loans would benefit from the measure.

"The potential cost for the banks could be up to 200 million euros ($218.10 million) depending on future interest rate hikes from the European Central Bank," one banker told Reuters on condition of anonymity.

Greek banks have seen an increase in demand for new mortgage loans as the economy recovers after a decade-long debt crisis and the COVID-19 pandemic. They reported a total of 3.5 billion euros of net profit last year on the back of higher interest rate margins.

The average interest rate on Greek mortgage loans stood at 4% in January this year, up from 3.1% in 2022, data from the Bank of Greece showed. The vast majority of outstanding mortgage loans worth 27 billion euros in Greece carry a floating interest rate.

($1 = 0.9170 euros)

(Reporting by Lefteris Papadimas; Editing by Mike Harrison)